Has Stimulus Failed? Take Two

The newly elected president was left with an economic mess. The bad policies of the previous administration and unwisely taking the country to war had left the economy in trouble, with high unemployment and declining GNP. The new president decided to implement a drastic change in economic policy not long into his first year in office and was roundly criticized by his opponents. However, by August signs of recovery were already visible. August of 1921, that is. By the next year unemployment had been cut in half, and a year after that it was down to 2.4 percent after being 12 percent in 1921. The Harding administration had cut government spending in half, cut taxes and reduced the national deficit. Meanwhile the Federal Reserve kept interest rates high, thus keeping inflation down.

It's almost been a year and a half since Obama's stimulus package was passed, and have we seen comparable results? Not even close. At what point in time are stimulus supporters going to admit this policy was a mistake? The thing is, there's a playbook out there that worked. Cut down the size of government, reduce the tax burden and quit crowding out private investment with government debt. The Obama administration has gone the exact opposite direction and we aren't seeing the results. The gains in the stock market and housing prices are being offset by the declining value of the dollar. Private investment and savings continue to decline while public debt soars to new and frightening highs.

The excuse for failure so far has been that Obama was handed such a mess that recovery is difficult. Certainly that is true, but at some point in time the policies we are following will have to be examined and declared successful or failures. I would like to know how long it will take. I am suggesting two years, since that is how long it took the Harding administration to arrive at complete recovery from the depression of 1920-21.

Comments

by the measure of what this regime's own leaders said, the stimulus/porkulus has certainly failed.

they said unemployment would not go anywhere near this high,
and now we have mostly government jobs, temp governmentjobs, briefly bolstering the employment figures. while employers are quite hesitant to hire given the regulatory and taxation environment of Obamanomics.

Pretty full of yourself this morning, huh? I see out of the 8 comment, 6 of them are yours. Have you thought about where we might be now if it wasn't for the stimulus bill? Everything I've read about it says it's doing what it was supposed to do and maybe even a little better than expected. I guess it depends on what news you believe. If you want to find fault it will be easy. always. I prefer to have a little faith in a man who is more educated than most on here and not believe he got elected just to he can tear the country apart with his Muslim, socialist, communist, whatever ways.Everything could be much much worse.And yes unemployment is higher than it has been in a while, but it's not the 12% that was predicted in the summer of '08.

Agreed. The only real problem with your analogy is the "playbook".This is a much different country than Harding had to deal with.And lifting prohibition,IMHO helped out a lot with a new tax base to draw from. Maybe it's time to de-criminalize, tax and regulate marijuana.
Also, how many jobs were outsourced during his administration?Recovery will not happen overnight and it won't happen as quickly as we all would like, but I think we're headed in the right direction.

Actually Liberty, I think it will take longer than two years, and it will never be the recovery anyone wants. Things are quite a bit different now than in 1920 so I think it's unfair to use the Harding administration as a metric.

In general terms, the actions taken at the end of Pres. Bush's administration and at the beginning of Pres. Obama's administration were done to dampen the descent of the economic decline, and keep the bottom from being catastrophically deep. The obvious outcome of that is that the turnaround point would be shallower but lead to a long drawn out recovery. Economic growth rate in the long run was sacrificed to minimize the human cost of a harsher, even though shorter recession/depression.

It's always about balance the human cost of laissez-faire versus federal (societal) intervention. The American today is a completely different creature as the one found in the past. A full blown economic collapse would be more devastating than a century ago, and we just barely avoided one. It wouldn't be just businesses wound fail and people would loose their jobs it would be much, much worse. Also the stimulus was no where near a bunch of caffeine, our economy didn't regain anything. It was more akin to giving the exhausted runner enough energy just to keep walking a little further in the hopes of finding more resources. Crash he might...eventually, and hard...but only if the fans keeping insisting that he run.

"If we allowed things to bottom out businesses would fail and people would lose their jobs, but then the business assets would be liquidated, prices would fall making things more affordable so that people could take lower paying jobs but maintain the same standard of living, the malinvestments would be cleared and then the economy would be back on track."

Unfortunately, you don't seem to understand the effects of the system-wide monetary deflation you seem to advocate so cheerily. Deflation leads to far less investment because it taxes borrowers to subsidize lenders (if you borrow $10 today but currency deflates tomorrow, you owe much more in real dollars). Because investment and development doesn't happen without access to credit and liquidity, this sort of deflation would result in a deep depression. In fact, it has, cf., The Great Depression.

Criticizing the stimulus package may make for political huzzahs, but unless you'd prefer more suffering, unemployment, death rather than less, I'm glad---and you should be, too--that those who advocate your position weren't in power.

If we're reflecting on historic occasions, don't overlook the 1970's and early '80's. By 1979, new economic policies had been started, with a new head of the Fed. A bipartisan legislature had initiated policies that the Reagan administration inherited and carried on. It was still nearly two years before that recession, not nearly as severe as our current situation, was to the point of "recovery."
The current situation is different in that there is very little bipartisan attempt to address the needs, this being maybe the most truculent minority in the history of the USA. The new policies were initiated by the last Pres., to some extent, but the timeline is about 3 years behind that of the 1983 recovery based on contrariness instead of cooperation.
The recovery will continue when the legislature becomes willing to do their job, rather than play poorly together. Then, their legislation may have some effect.
It is completely incorrect to lay the current mess on the Executive branch. It is legislative responsibility to write the laws, the executive's to flesh out the regulations and rules of how to do it and put it into action.

Sorry, you may have been out of the room, but the stimulus spending was initiated in September before the election in which Obama was elected. The President who proposed the initiation of this strategy of bailouts, major loans and stimulus was President George W. Bush. Yes, Obama followed through on the strategy, and it's clear that several aspects of the economy have benefited positively.
There is widespread support for follow through on the stimulus, as the jobs, although expressing a cessation of loss trend and re-initiation of positive growth, would benefit from a complete course, insuring the cycle follows positive trend without starving it.
Pres. Reagan, you may remember, followed through with stimulus for all eight of his years, adding 186% to the national debt in his two terms, In the long run, the benefit was clear.

Sorry, you may have been out of the room, but the stimulus spending was initiated in September before the election in which Obama was elected. The President who proposed the initiation of this strategy of bailouts, major loans and stimulus was President George W. Bush. Yes, Obama followed through on the strategy, and it's clear that several aspects of the economy have benefited positively.
There is widespread support for follow through on the stimulus, as the jobs, although expressing a cessation of loss trend and re-initiation of positive growth, would benefit from a complete course, insuring the cycle follows positive trend without starving it.
Pres. Reagan, you may remember, followed through with stimulus for all eight of his years, adding 186% to the national debt in his two terms, In the long run, the benefit was clear.

Sorry, you may have been out of the room, but the stimulus spending was initiated in September before the election in which Obama was elected. The President who proposed the initiation of this strategy of bailouts, major loans and stimulus was President George W. Bush. Yes, Obama followed through on the strategy, and it's clear that several aspects of the economy have benefited positively.
There is widespread support for follow through on the stimulus, as the jobs, although expressing a cessation of loss trend and re-initiation of positive growth, would benefit from a complete course, insuring the cycle follows positive trend without starving it.
Pres. Reagan, you may remember, followed through with stimulus for all eight of his years, adding 186% to the national debt in his two terms, In the long run, the benefit was clear.

Stopping the loss of jobs is an improvement. Adding new jobs is an improvement. Anyone can make up pseudo-statistics and throw them in, but it means nothing. If that's not clear to you, I give up, your mind is set and reality isn't really in your focus.
You were the one using a historical example, I used one more similar in nature, more recent, and more reflective of comparative conditions.
You will not pay the debt back with your taxes. I won't either.
If we were serious, we'd select seriously successful academics, businesspeople and professionals to represent us for a term or two, then send someone else to replace them.. They would be less inclined to accept the bribery to keep themselves in office than career politicians, who continually prove they are duplicitous.
We could balance the budget and begin payback by simply stopping the wars of convenience.

The Constitution, fleshing out the values expressed in the Declaration of Independence, codified 'provide for the common defense,' ' promote the general welfare', and 'regulate commerce.' The founders were neither ignoramuses nor polyannas. They had a few generations of knowledge that "more for me" will drive the unscrupulous to steal and that poverty and ineptitude are worth attempting to eliminate through education and establishment of the social contract as an enforceable code. Regulation of commerce is a practical, visible necessity.
Feel free to idealize no government, a situation that has exactly zero evidence of success in the history of humankind. I would prefer it minimal and accountable, and think that working toward that end preferable to imagining the non-existent hand of anarchy to be the end-all solution.

Your article wasn't about limited government nor checks and balances. It was a screed declaring total failure of the stimulus.
Facts are contrary to your declaration. We could quibble about numbers, but you declare that all official and neutral sources of information are false.
Everything I've said in this weird little string pertains directly to your statements.

I agree with your points Liberty. At this point I give the stimulus a grade of C. I think it was necessary to prevent our economy from dipping into a depression, from which I think a recovery would be more painful and take even longer to recover from. Much of the stimulus money went towards supporting state budgets and was effective. But considering the amount of stimulus, I'm not sure it was as effective as it could have been.

FDR was confronted with the same dilema, his opponents, some in his administration, and even Roosevelt himself were concerned about the massive government intervention taking place. And during his second administration, some of FDR's New Deal initiatives were denied and by 1937 the recovery slipped into another decline therby making it a "double-dip" depression. This is what concerns me currently, because if we cut back on stimulus and unemployment compensation, the same decline can occur. When debating stimulus, this gamble must be recognized.

Like you, I believe it is the private sector that will ultimately lead us out of the recession. But at the same time, I believe the Federal Government must use the tools it has to minimize the downturn in the economic cycle.

The obvious short-term economic "benefit" of war is that someone manufactures extraordinarily expensive, usually proprietary, patented (or "classified") gizmos that are blown up, requiring that industry to continue making more stuff to blow up. The market is never saturated, thus constant demand is a defined factor. The trickle over, to the political and banking interests who benefit from this amoral expenditure is the "good" as defined by reflexive economists.
I wholeheartedly agree that there are too many people who approve of that line of rationalization, and personally believe that amorality is immoral.
I agree with a lot of what you say, though do not agree that making conclusive judgments from early or simple anecdotes is a credible measure of success or failure of economic strategies made in response to other strategies several decades in the making.

I've read the wrecking crew book about how the GOP works through deregulation and
legislation to strip away policing powers of any agency i.e EPA, SEC, Interior, Justice
Dept., to make sure that the BIG MOney powers who lobby the GOP get way they lobby for.
Not only does big business get away with derivatives and deepwater horizon and no bid contracts, but the GOP gets to claim to the rural uneducated weary of washington masses
that Big Government doesn't work. I've had this arguement in the past over the Great Society
with my tea partier ex-grandfather who'd never admit that his party claims big government
doesn't work while the GOP is dismantling it for the state's rights anti-minority big business
plantation barons who still depend on cheap labor in the south to get wealthy from ( Shelby
Sessions, Barbour). That's the lovely schzophrenia politically of the GOP that comes
from behind the curtains and always fools the rural voters. With all of this in mind
as Obama entered office, it's a miracle we've come this far. The GOP didn't want anyone
to fix this mess. This mess is part of their plan to wreck the federal government.
To overcome the GOP's intentional economic destruction to this point is something else.
Too bad many of the dumblicans are still drinking the federal government destruction
Kool-Aid and calling the stimulus a failure only because it stopped their whole
end of the world prophecy for the godlican part of the GOP constituency.

here's a neat question libertarian. You all are for smaller government right?
your beloved country was actually the country of about 700 or so indigenous naitons.
Through nefarious treaties and outright theft and the abolishment of the treaty process
in 1871 and the sovereign yet dependant clause of John Marshall, this government
has a treaty trust relationship with 572 nations bands and tribes. Small government
Gop tried to terminate recognition of tribes between 1953 and 1971. President Nixon
repudiated termination and tribes recognition was restored. If you all and the GOP
are for smaller or no government, whose responsible for the payments for land
stolen or taken with a smaller government philosophy? Do you all become
historically disconnected to avoid culpability or do you man up and include
fiduciary responsibliity for tribal land compensation in your smaller government
or do you leave and give the land back?

The Obama administration got stuck cleaning up after a previous president that cost taxpayers $11 trillion with a $1 trillion debt as icing on the cake.

NOW along with blowing $11 trillion tax dollars the previous administration left behind
about 11 million americans forced out of work through no fault of their own. It was the fault of the government.

" Often, government plays a role in bubbles. The housing bubble was in part generated by the Federal Reserve maintaining low interest rates. Easy money meant readily obtainable loans and, at least in the short run, low monthly payments. Also, Fed Chairman Alan Greenspan denied the housing bubble’s existence—not fraud exactly, but deception that kept the bubble going. (Greenspan, whose view was ideologically driven, got support in his bubble denial from the academic work of the man who was to be his successor, Ben Bernanke.)

In addition, government regulatory agencies turned a blind eye to the highly risky practices of financial firms, practices that both encouraged the development of the bubble and made the impact all the worse when it burst. Moreover, the private rating agencies (e.g., Moody’s and Standard and Poor’s) were complicit. Dependent on the financial institutions for their fees, they gave excessively good ratings to these risky investments. Perhaps not fraud in the legal sense, but certainly misleading.

And, yes, substantial fraud was involved. For example, mortgage companies and banks used deceit to get people to take on mortgages when there was no possibility that the borrowers would be able to meet the payments. Not only was this fraud, but this fraud depended on government authorities ignoring their regulatory responsibilities.

So, no, a bubble and a Ponzi scheme are not the same. But they have elements in common. Usually, however, the losers in a Ponzi scheme are simply the direct investors, the schemer’s marks. A bubble like the housing bubble can wreak havoc on all of us."

Dollars and Sense

Now what exactly does the repub party have in mind to restore 11 million jobs that went out the window under the watch of their regulatory jurisdiction that which was the Bush administration?

If tax breaks were the key to great paying new employment opportunities the USA would have a huge surplus of jobs no matter what.

Liberty One I agree that we need a much smaller government. I would suggest no more earmarks attached to bills. If a bill can't stand alone then don't pass it. Also, my wish would be lobbyist no longer be allowed to contact Senators of Representatives on any level of government.